Asymmetric unemployment-output tradeoff in the Eurozone

Tang, Bo; Bethencourt, Carlos

doi:10.1016/j.jpolmod.2017.01.003

Cited by 36 publications

(24 citation statements)

References 33 publications

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“…The estimated Okun's coefficients (Tables 3 and 4) support the idea of nonlinearity in Okun's law (Tang and Bethencourt 2017). Virén (2001) for OECD countries, Cuaresma (2003) and Knotek (2007) for the US economy, and Novák and Darmo (2019) for EU28 estimated that total unemployment reaction to output volatility is significantly higher in recessions than in expansions.…”

Section: Youth Unemployment Rate Sensitivity To the Output Gapmentioning

confidence: 52%

“…Only in a few countries and only for female unemployment did we notice a higher impact of the positive gap rather than the negative one. However, only point estimates support the conclusion presented by Tang and Bethencourt (2017), Virén (2001), Cuaresma (2003), Knotek (2007), and Novák and Darmo (2019), that unemployment is more sensitive to economic recessions than expansions. The cases where coefficients of both gaps are within the same confidence interval (see Appendix B) do not allow to conclude with confidence that the reaction of the unemployment rate to economic upturns and downswings is significantly different.…”

Section: Robustnessmentioning

confidence: 73%

“…Also, contrary to the above-mentioned studies which assume that the output gap has a homogenous effect on unemployment, we allow different effects to occur depending on the gap's sign (positive/negative). We can find in the literature empirical support that total unemployment sensitivity to output is higher in recessions than in expansions (see Tang and Bethencourt (2017), Novák and Darmo (2019) for a literature review), but there is a lack of evidence whether this pattern holds for ageand gender-specific unemployment rates. Here, our research is close to Ahn et al (2019), but with the focus on the unemployment rate, instead of its fluctuation from the equilibrium level, and it's reaction to the changes in positive and negative output gap.…”

Section: Introductionmentioning

confidence: 93%

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The Output Gap and Youth Unemployment: An Analysis Based on Okun’s Law

Butkus

Šeputienė

2019

Economies

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The impact of economic fluctuations on the total unemployment rate is widely studied, however, with respect to age- and gender-specific unemployment, this relationship is not so well examined. We apply the gap version of Okun’s law, aiming to estimate youth unemployment rate sensitivity to output deviations from its potential level. Additionally, we aim to compare whether men or women have a higher equilibrium unemployment rate when output is at the potential level. Contrary to most studies on age- and gender-specific Okun’s coefficients, which assume that the effect of output on unemployment is homogenous, we allow a different effect to occur, depending on the output gap’s sign (positive/negative). The focus of the analysis is on 28 EU countries over the period of 2000–2018. The model is estimated by least squares dummy variable estimator (LSDV), using Prais–Winsten standard errors. We did not find evidence that higher equilibrium unemployment rates are more typical for men or for women. The estimates clearly show the equilibrium level of youth unemployment to be well above that of total unemployment, and this conclusion holds for both genders. We assess greater youth unemployment sensitivity to negative output shock, rather than to positive output shock, but when we take confidence intervals into consideration, this conclusion becomes less obvious.

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Section: Youth Unemployment Rate Sensitivity To the Output Gapmentioning

confidence: 52%

Section: Robustnessmentioning

confidence: 73%

Section: Introductionmentioning

confidence: 93%

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The Output Gap and Youth Unemployment: An Analysis Based on Okun’s Law

Butkus

Šeputienė

2019

Economies

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“…Thus, there is enough evidence to conclude that there is the long run negative relationship between inflation and unemployment for France, Japan, Turkey and the U.S.A. Contrarily to this finding, Tang and Bethencourt (2017) aimed to examine the nonlinear structure of the output-unemployment relationship in the 17 Eurozone countries and they found long run and short run symmetric trade-off between output and inflation for France in their study.…”

Section: Non-linear Ardl Resultsmentioning

confidence: 99%

Backward bending structure of Phillips Curve in Japan, France, Turkey and the U.S.A.

Bildirici

Sonüstün

2018

Economic Research-Ekonomska Istraživanja

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“…The unemployment index, which is supposed to be a lagging index, showed an overall leading index signature in our study, i.e., 73% of the time. However, the German unemployment index has a different relation to the output from in many other countries (Lisi and Pugno 2015;Tang and Bethencourt 2017). Furthermore, the β-coefficient (the slope) in Okun's law is much smaller than in the US (Ball et al 2015).…”

Section: Comparing Ifo and Zew To The Behavioral-based Index Ofmentioning

confidence: 94%

Comparing Sentiment- and Behavioral-Based Leading Indexes for Industrial Production: When Does Each Fail?

2019

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We apply a relatively novel leading-lagging (LL) method to four leading and one lagging indexes for industrial production (IP) in Germany. We obtain three sets of results. First, we show that the sentiment-based ifo index performs best in predicting the general changes in IP (−0.596, range −1.0 to 1.0, −1.0 being best). The ZEW index is very close (−0.583). In third place comes, somewhat unexpectedly, the behavioral-based unemployment index (−0.564), and last comes order flow, OF (−0.186). Second, we applied the LL method to predefined recession and recovery time windows. The recessions were best predicted (−0.70), the recoveries worst (−0.32), and the overall prediction was intermediate (−0.48). Third, the method identifies time windows automatically, even for short time windows, where the leading indexes fail. All indexes scored low during time windows around 1997 and 2005. Both periods correspond to anomalous periods in the German economy. The 1997 period coincides with "the great moderation" in the US at the end of a minor depression in Germany. Around 2005, oil prices increased from $10 to $60 a barrel. There were few orders, and monetary supply was low. Our policy implications suggest that the ZEW index performs best (including recessions and recoveries), but unemployment and monetary supply should probably be given more weight in sentiment forecasting.Economies 2019, 7, 104 2 of 18 increases or decreases in forecasting skill. The present study addresses the first of these modes. The LL method is not itself a forecasting method.We examine three leading indexes and one coinciding/lagging index to Industrial production (IP) with respect to their LL relations. Sentiment-based indexes are frequently used as a forecasting device for the economy in the popular press that deals with economic issues, e.g., CNNmoney (2018) and FinancialTimes (2018). The ifo business climate index is a survey-based sentiment index for Germany from the ifo institute for economic research (IFO 2016). The ZEW business cycle index is from the ZEW (Centre for European Economic Research) (ZEW 2016). The third index is a series for "order flow" (OF) that we interpreted as a behavioral-based index. The fourth index is the standard unemployment index (UE), which is a coinciding/lagging index to IP (Enders 2010;Heij et al. 2011;Balcilar et al. 2013). The LL method can be applied to any pairs comprised of candidate leading time series and target time series, e.g., to update composite leading indicators (Abberger et al. 2018).In the present application, we calculate rolling average LL strength over three observations, and then over a longer time window (9 to 13 observations) to obtain a significance measure. By doing this, we can identify time windows where LL strength becomes weaker or stronger, or changes sign. This is a novel feature of the LL method compared to earlier applications.

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Asymmetric unemployment-output tradeoff in the Eurozone

Cited by 36 publications

References 33 publications

The Output Gap and Youth Unemployment: An Analysis Based on Okun’s Law

The Output Gap and Youth Unemployment: An Analysis Based on Okun’s Law

Backward bending structure of Phillips Curve in Japan, France, Turkey and the U.S.A.

Comparing Sentiment- and Behavioral-Based Leading Indexes for Industrial Production: When Does Each Fail?

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